Banks' sloppy operations will cost them (us) dearly

It’s bad enough thinly-capitalized banks took on massive risks. But now we learn banks were simultaneously failing at basic operations, like ensuring the paperwork on $750,000 mortgages was kosher and maintained in safe places:

The notes that underlie mortgages placed in securitization trusts must be assigned to those trusts soon after the firms create them. And any transfers of these notes must also be recorded.

But this seems not to have been a priority with many big banks. The result is that bankruptcy judges are finding that institutions claiming to hold the notes that back specific mortgages often cannot prove it…

No one knows how many loans went into securitization trusts with defective documentation. But… eight million nonprime mortgages were put into securities pools in 2005 and 2006 and sold to investors. The value of these loans was $797 billion in 2005 and $815 billion in 2006.

Posted by James on Monday, March 02, 2009